Rice, honey, leather. With large bills voided, his neighbors were offering to barter whatever they had for his vegetables and spices at the weekly market.

“We have to feed our children,” said Anima Sandha, who helps run a small beauty parlor in Mr. Barik’s village of Khulia, in eastern Orissa state.

Mr. Barik traded one customer a kilogram of potatoes, cauliflower and tomatoes for half a liter of honey. That was a good deal, he says. In normal times, the honey would be 120 rupees in the market (around $1.80) and the vegetables 70 rupees.

But these are not normal times, not in Khulia or anywhere else in India.

As authorities struggle to replace the more than 20 billion notes that are being yanked out of the economy to punish cash-hoarding tax evaders, the sudden scarcity of paper money is being felt most acutely far from India’s megacities.

In the countryside, bank branches are few and understaffed. Villagers report waiting all day at a bank for usable bills, only to return home empty-handed. Cash machines are also rare. India only has 18 for every 100,000 adults. In Japan and the United Kingdom, the figure is around 130.

“You needed to have almost a military-style remonetization effort” to get the new bank notes out, said Partha Mukhopadhyay, an economist at the Centre for Policy Research in New Delhi. “That hasn’t happened.”

Indian villagers wait inside a bank to make the transactions in Basendua village in the northern state of Uttar Pradesh on Wednesday.
Photo:
Agence France-Presse/Getty Images

Few rural residents have debit or credit cards or the ability to make digital payments. So to get by, communities are turning to decidedly older forms of cashless payment.

Rice, abundant after the autumn harvest, has become a common medium of exchange. Rice for lentils, rice for potatoes, rice for cooking oil, rice for salt. One woman in Orissa even said she traded rice for the flattened rice flakes known as chivda.

“This was the only way I could make sure my family had vegetables and lentils with their meals,” said Drubandini Nahak, who lives in Chudapali village, in Orissa. “Money is no longer available.”

In Ayatpur, another village in Orissa, Sandhayarani Sahoo came to buy clothes for her daughter’s wedding. A shopkeeper gave her saris, lungis and cotton towels for no money up front—but took her gold earrings as collateral.

For rural India, a prolonged liquidity shortage would not merely be an inconvenience. The winter sowing season began not long ago, and growers need cash to pay for seeds, fertilizer and farmhands. The government has eased withdrawal restrictions to try to rush more hard currency to farmers and agricultural traders.

Even if farmers agree to sell produce on credit, Mr. Sonkar said, the truckers who would transport it want cash up front. “The market looks almost deserted,” he said.

So far, there is not much evidence that food is becoming widely unavailable as a result. Retail prices for common grocery items haven’t seen much movement since last week, according to daily data from India’s Department of Consumer Affairs.

“Next week, if the currency supply is OK again, then everything might go back to normal,” said Babu Ramchandani, a fruit exporter in Mumbai. “Let’s hope for the best.”

In the northern state of Bihar, farmer Shankar Mahato needed milk—lots of it—to make sweets for his daughter’s wedding. His neighbor Virender Kumar owns a couple of cows. They struck a deal: all the milk Mr. Mahato needs, in exchange for a five-day supply of vegetables from his farm.

“We trust each other enough,” Mr. Kumar said. “I don’t think either of us will default on our promise.”

In the state of Haryana, just west of Delhi, Ram Mehar recently swapped 25 kilograms of rice for some clothing for the women in his family. “We are able to manage this way,” he said.

Others said they hoped to be able to transact with money again soon.

“It is becoming very hard to survive,” said Ms. Sandha, the beauty-parlor worker in Khulia. “How many days are we going to barter?”

Seems like a lot of disruption just to knockout the counterfeiting of the terrorists and other groups. The police around the world keep telling us removing high denomination bills is going to lead to a big drop in crime...but I cant say ive really observed this happen. For example, did Canada see much drop in crime and corruption after they withdrew the $1000 bill ? I don't think so...at least I haven't seen any news reports to that effect. I know that Canada didn't demonetize it and there are still 1 million bills floating around out there in the system...but where are they and who is using them and are the people who are holding them criminals or what?

People are saying we should get rid of the $100 bills now too across the western world...please no...if anything, because of inflation, it might be useful to have a $200 dollar bill put into circulation and a few coin denominations abolished.

"Few rural residents have debit or credit cards or the ability to make digital payments."

smart phones can be converted into an electronic card reader. in any case, banks might want to use the present snafu as an incentive to move more aggressively towards electronic card readers, especially debit card readers.

@Thomas Bishop Where the entire country is NOT yet electrified and where there is NO guarantee of uninterrupted power supply, and half the country does NOT have access to internet, what have you been smoking to have put in such a comment...

An ill-conceived and poorly executed move. In a country where over 300 million have no access to banking, and a banking network rife with inefficiencies, frequent bank closures due to bank holidays or union strikes, poorer Indians have tended to avoid the banking system. Moving Indians to a cashless or plastic society implies processing costs that will be passed on to the public. Further, for plastic, either credit or debit, Indian banks do not have the credit risk infrastructure to assess individual credit risk but rather a convoluted KYC process that include getting a letter from a village head to prove that you are indeed who you claim you are. Most importantly, "black money" has been safely exported outside the country over the decades and through a process that successive governments have failed to fathom or tackle - today, much of it sits in legitimate "white" or legal form overseas. The only true benefit is a one-time curtailment of terror financing channels.

Jesus, how backwards. India should be hard-driving towards becoming a massive world economic power, but these strange measures--and the intransigence of local politicians--makes administration a nightmare. Ugh, I want so badly for the Indian people to succeed but this just highlights the monumental challenges that lie ahead.

@Kyle Bieneman Kyle: Please read my comment above. One should not expect everything to go back to normal immediately after such a major step, which was sorely needed. This would be the classic short-term pain resulting in long-term gain.

I'm well aware of the intended goal, but it's not going to work. The bad guys will just hire runners to exchange their money (and they mostly hold gold or offshore accounts anyway). And in the meantime, you've done nothing to address the root cause of India's huge underground economy, which is the stifling regulatory regime that makes it far too difficult and expensive to start legitimate businesses.

I heard about this on Glenn Beck's radio show yesterday. It seems pretty outrageous that this is not a bigger story internationally. The world's 2nd largest country and over 1 billion people are moving towards a cashless society. There are going to be consequences to this decision. I hope it doesn't hurt the average Joe to much there.

@Pradeep Pillai It's a bold measure with absolutely '0' consideration/thought given to implementation. Taking 86% of notes in circulation away and expecting people to 'applaud' this "effort" because he "did something about corruption" is a little too much. People in India are too drunk on the Modi kool aid so even if he 'sneezes' it's supposed to be a bold move? This is one of the worst moves ever by a sitting PM.

@Pradeep Pillai In a cashless economy, where unlike you, millions of underprivileged live with no access to an ATM or a bank nearby, this is a body blow. So yeah, you and me ride it out but for them existence is a day-to-day challenge. And come up with some better and nuanced insults. Your patriotism is hurting my eyes.